In a significant move that could provide some assurance to the global limited fuel market, Russia’s largest producer of liquefied natural gas (LNG), Novatek, has commenced production at the “Arctic 2” project, despite US sanctions.
Alexander Novak, Russian Deputy Prime Minister, announced in an interview with the government-owned “Russia 24 TV” channel on Wednesday that the operation of the first liquefaction unit in the project, managed by Novatek PJSC, has begun. He anticipates the first shipment from this project to be dispatched during the first quarter of the coming year.
Located on the Gydan Peninsula in the Arctic Circle, the facility is the second-largest project by Novatek and plays a crucial role in Russia’s goal to triple its production of LNG to 100 million tons by the end of the current decade.
The sanctions imposed by the United States on the project’s operating company in November of last year posed a threat to this ambitious target.
Novatek had earlier sent notices to some LNG buyers about the possibility of facing force majeure earlier this month. Additionally, foreign partners declared a state of force majeure on their participation in the project, according to undisclosed sources within the Russian government, as reported by “Kommersant” newspaper earlier this week.
Novatek holds a 60% stake in the facility located in the Arctic Circle, while “Total” and the Chinese companies “China National Petroleum Corporation” (CNPC) and “CNOOC” each hold 10%.
A Japanese consortium comprising “Mitsui & Co.” and “Japan Oil, Gas and Metals National Corporation” (Jogmec) also owns a 10% share.
“Arctic 2” exports may increase overall supplies at a time when the world, especially Europe, increasingly relies on ultra-cold fuel to meet energy needs. Europe continues to import significant quantities of LNG from Russia, despite a significant reduction in pipeline-transmitted flows.
The project includes three liquefaction units with a total production capacity of 19.8 million tons per year.
The first unit is expected to reach its planned production capacity of 6.6 million tons during the first quarter of 2024, with the second and third production units anticipated to become operational in 2024 and 2026, respectively.
Force majeure does not necessarily mean that no shipments will be made from “Arctic 2,” according to “Energy Aspects.”
In an email memorandum sent last week, Jake Horslen, Senior LNG Analyst at “Energy Aspects” in London, wrote that “exports will depend on Novatek or any other Russian entity’s ability to deliver quantities from the project, given the limited number of potential buyers willing to ignore US sanctions. Therefore, shipping is likely to constrain ‘Arctic 2’ exports.”
The project had ordered 21 icebreaking LNG carriers, including six vessels from South Korean company “Hanwha Ocean Co,” formerly known as “Daewoo Shipbuilding & Marine Engineering,” and 15 LNG carriers from Russian shipbuilder “Zvezda.”
The latter delayed the completion of the first five ships due to Western sanctions that prohibited the export of certain ship equipment to Russia.
Novatek expects to receive these carriers in 2024 instead of the current year.
It was also planned for the company to receive three icebreaking LNG carriers for this year, manufactured by “Hanwha Ocean” and leased by Japan’s “Mitsui O.S.K. Lines” (MOL).
However, it is yet unclear whether “Arctic 2” has received them. The remaining three ships, which the Korean company was supposed to build, were requested by “Sovcomflot,” Russia’s largest shipping company, but the contract was terminated due to sanctions.
In June of last year, Novatek’s CEO, Leonid Mikhelson, stated that the contract with “Hanwha” was being transferred to another owner, and the carriers were under construction.
The issue lay with “Sovcomflot,” according to a report published by “Kommersant.”
